2011 Annual Report - OTCIQ.com

Analyzing Value Creation by Means of ROACE and
Value Added
ROACE is a pretax total return on capital. It measures the
sustainable return on invested capital generated by operating
a business. ROACE is defined as the ratio of EBIT to average
capital employed.
Average capital employed represents the interest-bearing
capital tied up in the Group. Capital employed is equal to a
segment’s operating assets less the amount of non-interestbearing
available capital. Depreciable assets are recorded at
half of their original acquisition or production cost. ROACE
is therefore not affected by an asset’s depreciation period.
Goodwill from acquisitions is included at acquisition cost,
as long as this reflects its fair value. Changes to E.ON’s portfolio
during the course of the year are factored into average
capital employed.
Average capital employed does not include the marking to
market of other share investments. The purpose of excluding
this item is to provide us with a more consistent picture of
our ROACE performance.
Value added measures the return that exceeds the cost of
capital employed. It is calculated as follows:
Value added = (ROACE – cost of capital) x average capital
employed.
ROACE and Value Added Performance in 2011
The significant decline in our ROACE, from 14.4 to 8.4 percent,
is primarily attributable to the decline in our EBIT. This effect
was partially counteracted by a slight reduction in our average
capital employed. This resulted from disposals and shutdowns,
which were not entirely offset by ongoing investments. At
8.4 percent, our ROACE again exceeded our pretax cost of capital.
As a result, value added amounted to €90 million.
CEO Letter
E.ON Stock
Combined Group Management Report
Consolidated Financial Statements
Corporate Governance Report
Supervisory Board and Board of Management
Tables and Explanations
The table below shows the E.ON Group’s ROACE, value added,
and their derivation.
E.ON Group ROACE and Value Added
€ in millions 2011 2010
EBIT1 5,438 9,454
Goodwill, intangible assets, and property,
plant, and equipment2 + Shares in affiliated and associated
companies and other share
67,987 72,194
investments 8,233 8,543
+ Inventories 4,828 4,064
+ Accounts receivable
+ Other non-interest-bearing assets,
including deferred income and
4,055 5,184
deferred tax assets 29,331 23,709
- Non-interest-bearing provisions3 - Non-interest-bearing liabilities,
including deferred expenses and
8,231 8,006
deferred tax liabilities 41,132 37,362
- Adjustments4 Capital employed in continuing
1,908 2,614
operations (at year-end) 63,163 65,712
Capital employed in continuing
operations (annual average) 5 64,438 –
ROACE 8.4% 14.4%
Cost of capital before taxes 8.3% 8.3%
Value added 6 90 4,000
1 Adjusted for extraordinary effects.
2 Depreciable assets are included at half their acquisition or production costs.
Goodwill represents final figures following the completion of the purchase-price
allocation (see Note 4 to the Consolidated Financial Statements).
3 Non-interest-bearing provisions mainly include current provisions, such as those
relating to sales and procurement market obligations. They do not include provisions
for pensions or for nuclear-waste management.
4 Capital employed is adjusted to exclude the mark-to-market valuation of other share
investments, receivables and liabilities from derivatives, and operating liabilities
for certain purchase obligations to minority shareholdings pursuant to IAS 32.
5 In order to better depict intraperiod fluctuations in average capital employed,
annual average capital employed is calculated as the arithmetic average of the
amounts at the beginning of the year and the end of the year.
6 Due to the switch from capital employed to average capital employed, the prioryear
figure reflects cost of capital as of the balance sheet date.
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